3 Reasons General Motors Is Still a Buy Despite Peak Auto Sales in the U.S.

It's no secret that Wall Street refuses to buy into the automotive industry at a time automakers such as General Motors(NYSE: GM) are posting record profits, solely because the U.S. new-vehicle market is peaking. To be fair, plateauing U.S. sales make it difficult to deliver a compelling growth story, but that doesn't mean Detroit's largest automaker isn't doing a lot of things right. In fact, here are three reasons that investors should remain optimistic about its financial performance despite peaking auto sales.

Fleet queen, no more

For a long time the accepted notion was that Detroit automakers gained market share and sales volume due to a large amount of fleet sales -- and at one point in time, that was true. However, GM has sacrificed tens of thousands of sales in favor of focusing on more profitable retail sales instead.

More specifically, GM's fleet sales to the rental channel, which is the least desirable fleet channel, are down 29% year to date. GM's daily rental sales as a percentage of total sales were less than 10% through the first three quarters of 2016, down roughly 600 basis points from 2013's 15.8% level. On the flip side, GM's retail market share has jumped from 16.1% to 16.6% during the same time period. Those two factors have played a significant part in GM's North America EBIT-adjusted margin moving from 7.8% to 10.7%, again during the same time period.

The future is now

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One catalyst for major automakers is often overlooked: smart mobility projects. There's no reason Uber couldn't have been developed as a side project by any major automaker -- a mistake GM doesn't want to repeat. Since Uber, which commands a valuation around $60 billion, arrived on the scene seemingly overnight, GM has doubled down on its mobility projects and created its Maven program.

Maven is a car-sharing program that is now operating in 10 cities after having launched only a year ago. The basic premise is that Maven offers a handful of services: a city-based service in which GM vehicles are rented by the hour, another designed for urban consumers, and a peer-to-peer car-sharing service named Express Drive.

As of the last update from GM, more than 11,000 customers have driven 23 million miles using Maven. Those figures come from the program's early stage, and if GM can show investors its ability to generate incremental revenue from a project such as Maven, it will be a huge boost to its valuation.

Stock price is in neutral, but value isn't

Sure, the ultra-cheap valuation -- GM trades at forward price-to-earnings ratio of 5.6, according to Morningstar -- and a stock price stuck in neutral have frustrated investors. But that doesn't mean GM hasn't returned value to shareholders in a big way.

Last year GM returned roughly $6 billion to shareholders via dividends and share repurchases. Through the first three quarters of 2016, it has returned more than $3 billion to shareholders and increased its quarterly dividend by 6%, and it currently yields 4.68%. GM also completed its $5 billion share-repurchase plan a quarter ahead of schedule and has added another $4 billion authorization to the program. Furthermore, GM is on pace with its four-year plan that is aiming to create $5.5 billion in cost efficiencies by 2018 -- the company has already achieved $3.7 billion through the third quarter.

Wall Street isn't buying into the auto industry, and GM's flatlining stock price is indicative of that. But that doesn't mean GM isn't doing a lot of things right; the company is focusing on more profitable sales channels, investing in a rapidly evolving future, and returning billions of dollars to investors in the meantime. You could do much worse than owning a stock like GM.

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